4 stories catch my eye this week:
Social Impact Bonds – a new instrument being used in the UK. From the described first test case, the idea seems to be: 1) private investors buy the bonds to fund an innovative new program that, if successful, will reduce social service costs for the government in the future because some needy population will have been aided. 2) If the program is successful and the program DOES reduce government costs, the government shares the wealth by paying a return on the bonds. How this makes sense to me: I once heard a theory of foundation funding being that foundations fund innovative new social programs for 3 or so years, long enough to prove their efficacy (or lack thereof) with the expectation that government will pick up the effective programs. However government stopped picking up effective programs and foundations haven’t been able to sustain funding. This instrument seems to me to solve that problem by making it a government program to start, but allowing private capital to take the risk of experimentation. But better yet, if the risk pays off not only does the program stick but the innovators get some capital back!
Social Capital Marketplace: Olivia Khalili does a nice roundup of the leaders in the social venture funding space in her blog: 15 Social Venture Capital Firms You Should Know About. On the more traditional end of this range (but still very much in the range) I would also add my favorite Community Development Venture Capital firms: Pacific Community Ventures, Sustainable Jobs Fund, and Coastal Enterprises, Inc. On the more social side there are a number of foundations that could be added: RSF Social Finance for one.
Investors often talk about the importance of alignment of interests: between investors and entrepreneurs, and among the group of investors themselves. One way to ease those tensions and keep everyone focused on the long term goals could be to create a revolving equity fund- returns on equity come back into the fund to be re-invested in more enterprises. Two folks in NYC are establishing a fund to test it out. Check out the Presumed Abundance fund.
Something that as a member I’ve actually put energy behind: Investor’s Circle will pilot a new tool to do a social/environmental assessment of presenting companies at the conference this April 19th! IC is partnering with the Global Impact Investing Network (GIIN) to use the Global Impact Investing Rating System (GIIRS) to rate presenting companies. What that means at the implementation level is that all the presenting companies should be taking the B-Corporation survey now, and we investors will receive copies of their survey ratings at the conference. We did a pilot last fall but the ratings were not shared with all investors. B-Corp is designed to be entrepreneur-friendly and a little protective, part of working to gain wide acceptance, so my first experience was that it was a little opaque to me as an investor. IC is now in a two-year effort to work with the ratings and see if we can’t make them more investor friendly as well.